What’s Really Driving Sustainability?

What’s really driving sustainability in real estate today? According to the latest CPE 100 Quarterly Sentiment Survey, one factor far outpaces the rest—and it might come as a surprise.

Asked to pick the No 1. consideration shaping their company’s sustainability strategies, 53 percent of respondents named corporate responsibility. That is nearly double the 27 percent who said that the top reason is the opportunity to generate goodwill with clients, tenants and customers.

“Real estate companies have really stepped up as sustainability leaders in recent years,” observed CPE Editorial Director Suzann Silverman. “They are investing significantly in a wide array of initiatives that benefit our environment, both now and in the future.”

The CPE 100 Quarterly Sentiment Survey offers two sets of insights: a focus on a different critical topic each quarter and a regular check-in on expectations for economic performance. This first-quarter survey of the CPE 100, an invited group of industry leaders, evaluated the changing perceptions toward sustainability.

An intriguing result was the surprisingly small group that said their sustainability strategy is most strongly influenced by financial rewards. Just 13 percent rated that a priority, despite the fact that the potential for significant cost savings is widely credited with advancing investment, particularly in energy efficiency.

Additionally, industry leaders sometimes challenge the value of sustainability-related government mandates, with one area of concern the growing number of cities and states that require disclosure of energy efficiency. Predictably, only 7 percent of those surveyed cited regulations as the leading influence on their sustainability strategies.

“Companies can still net very strong returns on older assets that are a bit behind the times in efficiency practices if the location is correct,” observed CPE Senior Associate Editor Mike Ratliff, the coordinator of the CPE 100 Sentiment Survey. “That said, price appreciation growth is slowing down in most property sectors. Savvy investors who add value through sustainability will find their asset much more attractive on the marketplace, especially among institutional investors.”

Underscoring the decade-long transformation of industry practices, the CPE 100 survey also confirmed the impact of sustainability on decision-making. Two thirds of respondents consider sustainability “important” or “very important” to their company’s strategy. Only 27 percent regard sustainable practices as “unimportant” to their strategy.

Further insights emerged when the CPE 100 were asked about recent volatility in the energy market. Although the steep decline in oil prices has stirred up much discussion, it has so far left the industry’s sustainability policies largely untouched. Seventy-nine percent of Sentiment Survey respondents agreed that “lower energy prices have had little or no effect; we’re still doing what we were doing before.” Only 14 percent said that declining costs make conservation less urgent.

Regarding broader economic performance, as the second half of 2015 approaches, CPE 100 members sounded decidedly more upbeat than they did only a few months ago. Sixty-four percent said that they expect their firms to be performing better three months from now than they are today. That is a striking reversal from the previous Sentiment Survey, released in March. At that time, just 31 percent of respondents predicted improved performance on a three-month horizon.

Meanwhile, the share of CPE 100 members who see brighter days ahead for commercial real estate as a whole has increased significantly this year. A majority—53 percent—believe that the industry will be healthier in three months, up from 39 percent in March and the most since last summer, when 58 percent offered that optimistic outlook.